Proxy firms say executives need more ‘skin in the game’
One of Australia’s most influential proxy advisory firms says boards can do more to align executive bonuses to long-term shareholder returns, creating more “skin in the game”.
Philip Foo, of CGI Glass Lewis, said bonus targets for locally listed companies tended to be weighted more toward short-term incentives over long-term incentive once adjustments are made for risk.
Left to right Hannah Wootton, Reporter, The Australian Financial Review Sonya Sawtell-Rickson, Chief Investment Officer, HESTA Ed John, Executive Manager, Stewardship, Australian Council of Superannuation Investors Philip Foo, VP APAC Research and Engagement, CGI Glass Lewis . Elke Meitzel
“That does not give a lot of opportunity for executives to see share price appreciation as a really large motivator of their behaviour,” Mr Foo told the Financial Review CFO Live Summit.
“I see some movement in the right direction, but I am looking for more skin in the game at of executive pay structures,” he said, adding that he often has to ask chief financial officers and executives to leave the room when they discuss the metrics used to calculate bonuses with board directors.
“Your board needs to be presenting as independent of you. It needs to be presenting as being a harsh but fair grader of your performance and your company’s performance,” Mr Foo said. “You shouldn’t be in the room for that.”
Mr Foo, however, said there had been progress in companies reporting the frequency of misconduct, which demonstrated more “integrity” for companies to own up to their issues.
“There’s no need to sugarcoat things, especially on when you’re talking about challenges and cultural misconduct,” he said. “We want to see boards tell us about how things aren’t perfect, what they’re doing about it.”
Feisty AGM season
Ed John, the executive manager of stewardship at Australian Council of Superannuation Investors, said chief financial officers could often be “pushed into the room” to defend a newly adopted financial metric used to set bonuses.
“I don’t think it’s where CFOs want to be: trying to practise or provide remuneration advice. Investors very much see such a critical role for CFOs as really custodians of the numbers,” Mr John said.
The comments come as a particularly feisty annual general meeting season comes to an end. Shareholders of underperforming companies inflicted several so-called first strikes by voting against remuneration structures.
It also comes as AustralianSuper voted down a board-approved takeover of Origin Energy as the influence of super funds on listed companies grows even larger.
Sonya Sawtell-Rickson, the chief investment officer at HESTA, said super funds now accounted for 40 per cent of the holdings of ASX-listed companies, and that was leading to a “real shift” toward longer-term decision-making.
“It’s really exciting for companies to have investors that are more inclined to invest today to create value into the future. But it is a bit of a change in rhythm for some companies,” she said.
ACSI is a proxy advisory firm that provides voting recommendation to industry superannuation funds. But Mr John said it was a “misnomer” that ACSI voted on behalf of its members.
“We do issue recommendations, but we know quite frequently that members actually take different views. That’s a good thing that that’s part of that diversity of thought.”
Mr John said ACSI and proxy advisory firms do not make recommendations on corporate valuations and so endorsements of the recent Origin takeover did not indicate a view on whether the bid represented a fair price.
“Fundamentally, the Origin vote is a question of firm value, and we’re not set up to do that. We’re not remunerated to do that.”
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Financial services
Fetching latest articles